4.4.1 Role of financial markets Flashcards
What are financial markets?
Financial markets are where buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature.
They meet the demand for services like saving and borrowing.
They also allow speculation and financial gains (like stocks or shares).
How do financial markets facilitate saving?
Stores moneys in savings accounts or money can be held in stocks and shares.
How do financial markets lend to businesses and individuals?
Financial markets lend to businesses and individuals by facilitating the flow of funds through mechanisms like stocks, bonds, loans, and mortgages, with the help of intermediaries such as banks, in exchange for interest or equity.
How do financial markets create a payment system?
Centeral banks print paper money, insitutions process cheque transactions, companies offer credit card services and bureau de changes buy and sell foreign currencies.
How do financial markets provide a market for equities?
Financial markets provide the ability to buy shares and sell them in the future - making the asset more appealing as otherwise people would not buy shares in companies if they could not resell them.
How do financial markets provide forward markets?
A firm is able to buy and sell in the future at a set price. This is often for commodities and in foreign exchange to help provide stability.
